Euro advances as US-Iran peace deal weighs on US Dollar

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EUR/USD rises after registering minor losses in the previous day, trading around 1.1610 during the Asian hours on Monday.

EUR/USD rises as the US Dollar weakens following reports of a US-Iran peace deal to reopen the Strait of Hormuz.
Trump announced that the Deal with the Islamic Republic of Iran is now complete.
Markets are already pricing in another ECB rate increase, targeting September as the most likely path, though July remains possible.

EUR/USD rises after registering minor losses in the previous day, trading around 1.1610 during the Asian hours on Monday. The pair appreciates as the US Dollar (USD) declines amid easing risk aversion following the reports that the United States (US) and Iran agree on a peace deal to end the war and reopen the Strait of Hormuz.

Bloomberg reported on Sunday that Pakistan Prime Minister Shehbaz Sharif said that the United States (US) and Iran have agreed on a deal to bring their nearly four-month war to an end, with both sides declaring the immediate and permanent termination of military operations on all fronts, including in Lebanon.

“The Deal with the Islamic Republic of Iran is now complete,” US President Donald Trump said on Sunday in a social media post. “I hereby fully authorize the toll-free opening of the Strait of Hormuz and, simultaneously herewith, authorize the immediate removal of the United States Naval blockade.”

Iran's National Security Council confirmed a ceasefire agreement with the US, adding that final deal talks will start after the other party fulfills commitments under the memorandum of understanding. Iranian officials said the maritime blockade against Iran should end immediately and entirely.

Markets are still processing the European Central Bank’s (ECB) first interest rate hike in three years, a preemptive move designed to curb a broader inflation surge driven by spiking fuel costs. Money markets are already factoring in another increase, with a September hike viewed as the most likely path, though July remains a distinct possibility. Alongside the rate tightening, the ECB upwardly revised its inflation outlook, signaling that price pressures may stick around longer than previously anticipated.

Specifically, the ECB boosted its headline inflation projections to 3.0% for 2026 and 2.3% for 2027, up from earlier estimates of 2.6% and 2.0%, respectively. Core inflation expectations were also given a lift, with the central bank now forecasting a steady 2.5% for both 2026 and 2027, up from the previous predictions of 2.3% and 2.2%.

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.